Analysis: Politics works against Canadian telecom reforms

By @ibtimes on

Foreign investors face a long wait before Canada opens up its telecommunications sector as Ottawa eyes a possible election this year and battles the industry's regulator.

The minority Conservative government has a long-stated commitment to loosening restrictions on foreign involvement in telecommunications, but it's now dragging its feet.

Investors are crying out for a clear signal things are going to open up, but we're going to have to wait a while longer, said University of Ottawa law professor Michael Geist.

The problem for Prime Minister Stephen Harper is that proposals for liberalizing the sector could become a campaign issue, and an election could come as early as this spring. Opposition parties would accuse Ottawa of weakening Canadian sovereignty by opening the doors to increased foreign investment.

The liberalization issue hit the spotlight again last week when a court quashed the government's 2009 decision to overrule the telecoms regulator and allow the launch of Globalive's Wind Mobile, which is backed by an Egyptian billionaire.

Allowing Globalive's wireless service to go ahead fit in with the government's stated goals of increasing competition and cutting costs for consumers. But it violated the Telecommunications Act, which limits foreign ownership of telecoms providers.

The court ruled the government had no legal basis for violating the act, muddying the water for future action by the Conservatives. The government is likely to appeal.

The regulator, the Canadian Radio-television and Telecommunications Commission (CRTC), wanted to block Globalive from launching Wind Mobile because too much of its financing came from Egypt's Orascom Telecom, backed by billionaire Naguib Sawiris.

LACK OF STRATEGIC POLICY

To make matters more complicated, the government has an uneasy relationship with the CRTC.

It pummeled the regulator again last week over its decision to effectively stop small Internet providers from offering unlimited downloading.

This back and forth between the regulator, the court and the government is a reflection of a lack of high-level strategic policy to shape the telecom environment, said Catherine Middleton, a professor at Ryerson University.

Opposition parties complain about what they see as the ruling party's steady assault on the regulator. Last week Ottawa named a businessman with close ties to the Conservatives as a vice-chairman of the CRTC.

If you were an investor, would you come to Canada when the regulatory body clearly has been undermined to such a degree? said Charlie Angus of the left-leaning New Democrats.

The Telecommunications Act now caps foreign ownership at 20 percent of a carrier's voting shares and restricts direct and indirect control to 46.7 percent.

Last June Industry Minister Tony Clement opened a public consultation to consider three possible changes:

* increase foreign ownership to a cap of 49 percent;

* allow foreign ownership up to 100 percent for those who have less than a 10 percent stake in the market;

* or eliminate all barriers to foreign ownership.

The consultation on the proposals ended on July 31 and many had expected the government to announce its preferred option within months.

But Ottawa has since decided to combine developing its policy proposals with preparations for its next auctions of radio frequency, due by late 2012.

A Clement spokeswoman said consultations on the wireless auction would start early this year.

Before any telecom companies can bid in these auctions, we have to make clear what the rules of the game are, she said.

IN LIMBO

This all leaves Globalive in limbo, with little hope that the government will push through legislation to resolve the foreign ownership question once and for all.

Still, Wind's 250,000-plus customers are unlikely to be disconnected any time soon, with a 45-day stay of the injunction likely to lead to appeals and further stays.

Globalive still has options to stay in business even if the court's ruling is upheld, such as shifting some of its debt, raising more Canadian equity or merging with another of the new wireless carriers that has a higher Canadian ownership level.

That means Wind will remain a low-cost and contract-free threat to the three established Canadian operators, which together control 95 percent of the wireless market.

Rogers Communications has almost 9 million wireless subscribers, while Telus and BCE's Bell Mobility have more than 7 million each, according to analyst Maher Yaghi of Desjardins Securities.

(Editing by Peter Galloway and Frank McGurty)

Join the Discussion